What Is a Fee Simple in Real Estate?

Understanding fee simple ownership is important when buying, selling, or investing in real estate. It is a common and comprehensive form of property ownership, granting full control and rights, including the ability to sell, lease, or transfer it to heirs. Here's what you need to know.

If you're interested in creating an estate plan, a financial advisor can work with you to manage and distribute assets.

What Is Fee Simple in Real Estate?

Fee simple ownership, often referred to as “freehold ownership,” is the most complete type of property ownership available. It gives the owner absolute control over the land and any structures on it, with the freedom to use, lease or sell the property as they see fit. This type of ownership is perpetual, meaning it has no expiration date and can be passed down through generations.

Fee simple ownership applies to both residential and commercial properties, making it the most common form of real estate ownership in the United States. Owner rights are subject only to local laws and zoning regulations.

Types of Fee Simple Ownership

There are two common types of fee simple ownership:

• Fee simple absolute : This is the most complete form of fee simple ownership, where the owner has unrestricted rights to the property. The property can be freely transferred, inherited or sold without any limitations.
• Fee simple defeasible : This type of fee simple ownership comes with certain conditions or restrictions. If the conditions are violated, the property may revert to the original owner or a third party. Fee simple defeasible is further categorized into fee simple determinable and fee simple subject to condition subsequent.

Fee Simple Ownership and Its Variations

Understanding fee simple ownership and its variations helps manage property rights and obligations effectively. Here are three common types to keep in mind:

Fee Simple Defeasible Ownership

The ownership remains in effect as long as certain conditions are met. For example, a property might be granted on the condition that it is used for a specific purpose. If the condition is violated, ownership can revert to the original owner or another designated party.

Fee Simple and Life Estates

A life estate is a type of ownership where the right to use and enjoy the property is limited to the lifetime of a specific individual. After that individual's death, the property typically reverts to another party, such as the original owner or their heirs. Fee simple ownership is more extensive than a life estate, as it is not limited by time and grants full control over the property indefinitely.

Fee Simple and Encumbrances

Even with fee simple ownership, properties can still be subject to encumbrances, such as mortgages , liens or easements. These encumbrances can affect the owner's ability to fully use or transfer the property. For example, an easement might grant a third party the right to access part of the property, which can limit how the owner uses that portion of the land.

FAQs About Fee Simple Ownership

What Is the Difference Between Fee Simple and Leasehold Ownership?

Unlike fee simple ownership, leasehold ownership is temporary and typically involves renting the property from a fee simple owner for a specified period. At the end of the lease term, the property reverts to the fee simple owner. Leasehold arrangements are common in commercial real estate, but they do not offer the same level of control or permanence as fee simple ownership.

What Is the Difference Between Fee Simple Ownership and Ground Lease Ownership?

Fee simple ownership provides the owner with full rights to the property, including the land and any structures on it. In contrast, ground lease ownership involves leasing the land from a fee simple owner, while the tenant owns the structures on the land. Ground leases are typically long-term but do not grant the same level of control or permanence as fee simple ownership. At the end of the lease term, the land typically reverts to the fee simple owner, along with any improvements made on it.

What Is the Difference Between Fee Simple and Fee Simple Absolute Properties?

Fee simple and fee simple absolute are often used interchangeably, but they refer to slightly different concepts. Fee simple is a general term for full ownership rights, while fee simple absolute specifically indicates ownership without any conditions or limitations. Fee simple absolute is the most complete form of ownership, with no restrictions on how the property can be used or transferred.

Bottom Line

Fee simple ownership provides the fullest control and rights over a property. This is important when buying, selling, or inheriting property. You should note the different types of fee simple ownership and how factors like encumbrances or leases might impact your rights.

Tips for Investment Planning

• Whether you want to buy a property or determine how to manage and transfer it after death, a financial advisor can help you create a plan for your investing and estate planning needs. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
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